Personal Bankruptcy: Causes and Consequences

Professors Sullivan and Worden review the current body of knowledge about the nature and extent of personal bankruptcy, draw conclusions about its causes and consequences, and suggest directions for credit unions to follow in combating this growing problem.

They show how the dramatic growth in personal bankruptcy is the result of broad economic, social, and demographic changes that impacted the market for financial services and altered the way consumers view consumer credit. They show how incentives associated with various alternatives affect the method financially distressed borrowers choose to resolve their financial difficulties. They then discuss the evidence on various types of incentives that credit unions might use to reduce the incidence of bankruptcy by their members.